Sept. 14 (Bloomberg) -- For decades, Uruguay has been best
known for the tranquil beaches of Punta del Este and picturesque
Colonia, a 17th century town on the Rio de la Plata. One of
South America’s smallest nations, it may soon have another claim
to relative fame as home to the world’s first government-run
marijuana market.

Leaders in Mexico, Colombia, and other Latin American
nations wracked by cartel violence are calling for a new
approach in the U.S.-led war on drugs. Uruguay President Jose
Mujica’s solution is to not just legalize pot but turn the state
into the sole supplier, replacing dealers who often engage in
turf wars as they move $30 million to $40 million of the drug
illegally each year, according to Uruguayan government
estimates.

Despite a divided public, the proposal has a strong chance
of passage in Uruguay’s legislature, which the president’s party
controls, Bloomberg Businessweek reports in its Sept. 17 issue.
State involvement would “spoil the market” for pot dealers,
“because we will sell it a lot cheaper than what they’re
selling it for on the black market,” Mujica, 77, told CNN last
month.

Marijuana possession for personal use has already been
decriminalized in Uruguay, although distribution remains
illegal. Under Mujica’s proposal, Uruguayans older than 18 would
be able to register for a monthly pot ration of up to 30 grams
(1.06 ounces), though sales to foreigners would remain
prohibited.

Switzerland of South America

Sales would be taxed, with proceeds funding treatment for
addicts of harder drugs. The government estimates there are
about 150,000 marijuana users in Uruguay and that it, or a
private contractor, would have to plant 150 to 200 hectares (370
to 490 acres) to meet demand.

The so-called Switzerland of South America, Uruguay, an
offshore banking haven for investors from neighboring countries,
is already in the pleasure business.

Along with the oil and landline phone industries, the
government operates a whiskey distillery. It’s also more
socially liberal than its larger neighbors. Mujica, once a
Castro-inspired guerrilla revolutionary, was elected to a five-year term in 2009.

He commutes in a beat-up Volkswagen Beetle from the
presidential palace in Montevideo, home to about half the
nation’s 3.4 million residents, to a modest flower farm on the
outskirts of town where he lives, tends roses and vegetables,
and plays with his three-legged dog, Manuela.

No ‘Sure Thing’

Mujica began campaigning for the law in July, when crime
was spiking, but he has yet to see results. In a recent survey
by private pollster Cifra, 66 percent of respondents opposed
legalizing pot sales.

The president has said he will bow to public opinion, but
Secretary of the Presidency Alberto Breccia said in July that a
new survey must be conducted once the full legislative language
of the proposal is finalized and publicly available. “If I
had to bet money, I’d say some version of this will pass, but
it’s not a sure thing,” says Adam Isacson, an analyst at the
Washington Office on Latin America, a human rights and social
justice advocacy group.

Among the converts is Nicolas Cotugno, the archbishop of
Montevideo, who said last year that he would support a move to
get the cartels out of the pot business, if that would curb drug
use.

Balancing Act

“Holland already did it in the 1970s and in 40 years has
managed to separate consumers of marijuana from those of other
drugs, which are very different,” says sociologist Agustin
Lapetina, who has studied the issue for 15 years at the social
development nonprofit El Abrojo. The Netherlands, incidentally,
is rethinking its marijuana policy, which became an issue in its
elections this year.

The smell of burning weed wafts through the air in
Montevideo on a Sunday stroll along the coast of the Rio de la
Plata, and seeps through the stands at the Centenario soccer
stadium.

In July, a group of connoisseur-activists held the
country’s first-ever “Cannabis Cup” to determine who, among
more than 70 entrants, grows Uruguay’s best buds.

Some users say it makes sense to establish the government
as a stakeholder in the weed market.

“The system becomes more coherent, because it’s illogical
not to punish me for smoking but to punish me for selling or
cultivating marijuana,” says Eduardo Gonzalez, who manages a
mini-mall in downtown Montevideo, while smoking a joint on his
break.

“It seems risky to create a tourist destination for
marijuana, but if the state has a record and controls it, I
don’t think there would be problems,” he said.